Wednesday, October 22, 2008

In IRS regulations allowing tax-exempt bonds, no need for messy democracy like an elective body

Anyone watching 12/8/06 meeting of the unelected Empire State Development Corporation (ESDC), with all of four board members (of seven, with one vacancy) in attendance could conclude that the project was rubber-stamped. Moreover, some board members had but a vague notion of project details.

But that wasn't the key decision made by the ESDC board. The key decision was made July 18, 2006, when the ESDC announced that it had "adopted" the General Project Plan (GPP) and "accepted" the Draft Environmental Impact Statement (EIS). (In December, what the board approved was the Modified General Project Plan, though the press release actually used the word "affirmed.")

In between, in October, the Internal Revenue Service (IRS) proposed new regulations to tighten tax-exempt bonds for sports facilities. We learned yesterday that the IRS grandfathered in projects “substantially in progress" by that time. Among the factors:
(i) A governmental person (as defined in §1.141-1) took official action evidencing its preliminary approval of the project before October 19, 2006...

(The Times points out that it still might be tough to sell the bonds, given the current economic turmoil.)

DDDB's contention

Develop Don't Destroy Brooklyn contends that, because the ESDC web site doesn't say that the project was "approved" (as opposed to "adopted') in July 2006, Atlantic Yards thus shouldn't qualify under the IRS rules.

That's a tough argument to win. (Can they get a tax lawyer to back it up? DDDB didn't merely say that it disagreed with other interpretations of the IRS ruling, but presumptuously claimed victory, despite multiple voices to the contrary, including that of The Bond Buyer.)

I hardly remember the ESDC board vote to adopt the GPP--the big news that day was the content of the documents--but it had to have been routine. Still, it's hard to believe that even a vote with with little deliberation couldn't fit under the generous rubric of "preliminary approval," even if, as No Land Grab points out, that raises questions about why exactly citizens bothered to offer public testimony and submit comments.

(Whether the IRS rules were tailored for this project, despite denials from a Treasury Department spokesman, is another question. The Daily News reports that the Bloomberg administration enlisted Rep. Charles Rangel, chairman of the powerful Ways and Means Committee, to lobby the Treasury Department.)

Not an elective body

Apparently, the regulations don't require action by an elective body.

A "governmental person (as defined in §1.141-1)" of the Treasury Regulations is "a state or local governmental unit as defined in §1.103–1 or any instrumentality thereof."

And what's §1.103–1? "[A]ny division of any State or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit."

In other words, a handful of appointees of Gov. George Pataki showed up at a meeting on July 18, 2006 and gave their OK to stacks of documents they hardly read--or didn't read at all. And that meant the project was on its way, even if the chronology sent by the city and state to the IRS was bogus.

Lack of oversight

"This is another example of powerful special interests getting access to public dollars under this administration," Assemblyman Richard Brodsky, a critic of the Yankees deal, told the AP yesterday. "The rules don't apply if you've got enough juice."

And Daily News columnist Juan Gonzalez reminds us of probes by Brodsky and Rep. Dennis Kucinich (D-OH), that suggest that the value of new Yankee Stadium was "gamed" by the city Finance Department to achieve inflated PILOTs (payments in lieu of taxes) and that the stadium's construction cost also has been inflated.

In other words, there were enough reasons, from a public policy perspective, to wait. But the Bloomberg administration, with the help of the Yankees (and presumably Forest City Ratner) got the IRS to move.

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